Clear Eyed Capitalist

Archive for April, 2006

If you read much of my blog, then you’ve probably quickly caught on that I’m referring to early-stage investors. Often called Angels. Sometimes called Friends, Family and Fools. Angels are usually one more step removed from the original founders, and are accredited investors who can legally make these early stage investments. As part of my explorations into understanding how companies are funded and built, I’ve been looking into angel investing. I have yet to actually make an investment because the intial layer of opportunites make me wary. In many cases the companies that come and pitch angel investing clubs come do a 10 minute pitch, answer questions for 2 minutes and walk out the door. Admittedly, that’s just the taste and if we’re interested we follow up for a more in-depth look, possibly as a group of a few of us. However, the other kicker is of the many I’ve seen so far, they’re looking to raise some 3 million dollars with a minimum investment of $25,000. I can’t help but notice what a big ratio that is, and be skeptical of how much time or energy they’ll realistically have to look out for my interests or even respond to me looking out for my own, were I to make such an investment. I mentioned these concerns to my esteemed business school founders, the Pinchots, and Libba pointed me to a blog that very articulately outlines, based on experience, what I have merely begun to suspect. Most excellent reading follows here.

It’s been a while since my last blog. I actually have three posts brewing, but I think it’s time to lower my standards a bit and recognize that this is a blog, not a published Journal, and at least get these into the fiber.

The term Corporate Social Responsibility gets used frequently and not always clearly. At one level writers seem to confuse CSR with corporate philanthropy. As if simply writing a check fulfills responsibility. I was in Starbucks the other morning musing about this. Starbucks is promoting the fact that they donate to local parks. If that’s all Starbucks did, while paying their employees subsistence wages and their suppliers life-support margins then simply donating to local parks and bragging about it, then that would be a perfect example of greenwashing. Basically doing something good, usually for the environment, as a distraction from or pitiful compensation for otherwise running a business as a resource extraction tool.

Fortunately Starbucks goes beyond that and does exhibit socially responsible behaviors. I would list foremost among those the fact that they offer benefits to all their employees, even the part time ones. Others might point to their efforts to ensure fair pricing for their suppliers. Their step into Fair Trade coffee is a step in the right direction. Their donations to local parks count as well, particularly the local influence they allow for deciding those allocations. Employees, Suppliers, Community. All stakeholders. Corporate Social Responsibility is about viewing the business itself as a community, responsible to all its stakeholders. Continuing financial solvency is at the very core of that because to allow the business to fail is to fail all those stakeholders who participate, or-scary thought in these selfish times- even depend on the business.

What makes Costco a socially responsible company in my mind, is not just that they treat their employees like long-term assets and cap their margins so I as a customer can impulse-purchase things I probably don’t really need but can trust to be a good deal, but that at some level they speak out against business as usual.

What really kicked this off though is an interesting example of Corporate Social Responsibility that I read about in the Washington post, here . It’s Target, your friendly neighborhood Wal-mart alternative. They have the usual local grant programs and corporate foundation giving to a host of social goods. However internally they’ve developed sophisticated resources for fighting shoplifting, fraud and other crimes and they’ve begun to share those resources with law-enforcement. They have re-envisioned store security as community security. They have an entire high-tech center that can analyze and clarify video tapes and they work with the FBI on illegal-goods busts. It took me half the Washington Post article to clue in that this really was the Target we know, it was so alien.

So this is interesting to me. This seems to be true corporate social responsibility as I have defined it above. And yet, this post has sat in the bit-bin because the concept makes me uneasy and I’ve been trying to clarify why. I’m should be a fan, right? A bunch of posters to a CNN columnist’s article about this were universal in their “right-on” and “I’m shopping at Target” responses. And it makes sense, the examples they cite in the article are truly egregious: a repeat-offender getting wrist-slaps because the various counties in the state don’t share databases and so don’t know they’re repeat. Offender finally rapes somebody. Target is applying their inventory-management expertise to help states better track criminals and undesirables. Hey, as far as I’m concerned, rapists deserve no protection and if we need to track more data to get ‘em, go Target.

But my uneasiness tracks to my experience running a private foundation and doing grant-making in communities of color. I’ve learned that contrary to my own experience, respectable people can have legitimate reasons to not trust the police. That people of color get different treatment than I do, and it’s not because they’re all crack heads. Further, abusive cops are difficult to get rid of in any neighborhood because of the way most police unions work. Different treatment leads to different records – teens of one color get detention at school, another color gets an overnight in jail that goes on their record. This builds into a track that straightens some teens out and tracks others to being career criminals. (a right-wing friend has a critique of the study I sent that I have yet to review and should address, but this is consistent with much learning I’ve done.)

So while it’s difficult for me to imagine drawbacks (beyond possibly wasted money) to funding kids and arts, a huge investment in strengthening policing without a parallel commitment to fixing the problems gives me pause. And truthfully, what is Target’s driving motivation? It’s probably pretty simple ultimately: minimize shoplifting and vandalism. But what if those things could be minimized by more specifically focusing on after school programs and drug treatment? We’ll never know because it’s not up to us, it’s up to Target.

And that’s where I really start to get stuck. Perhaps the truth is as ole Milton Friedman says: the business of business is business and nothing else. We just need to raise corporate taxes (or at least cut out all the breaks). So here’s how I resolve this: at it’s core, CSR is about the stakeholders. In this case, Target is addressing their community – a legitimate stakeholder. So to me, the final arbiter of whether or not this behavior is truly responsible is: what does the impacted community think? In this case I go back to the problem that most communities have limited opportunities to shape the policing they experience. That needs to be fixed first. Otherwise, we don’t know what the community thinks. If that’s the case and Target is going off on its own without negotiating with the affected stakeholder, I contend that it’s not CSR.